Integration Strategies:

Forward integration, backward integration, and horizontal integration are sometimes collectively referred to as vertical integration strategies. Vertical integration strategies allow a firm to gain control over distributors, suppliers, and/or competitors. Forward integration strategy refers to the transactions between the customers and firm. Similarly, the function for the particular supply which the firm is being intended to involve itself will be called backward integration. When the firm looks that other firm which may be taken over within the area of its own activity is called horizontal integration.

Benefits of vertical integration strategy:

Allow a firm to gain control over:

. . .

Distributors (forward integration)

Suppliers (backward integration)

Competitors (horizontal integration)

Forward integration: Gaining ownership or increased control over distributors or retailers Forward integration involves gaining ownership or increased control over distributors or retailers.
You can gain ownership or control over the distributors, suppliers and Competitors using forward integration.

Guidelines for the use of integration strategies:

Six guidelines when forward integration may be an especially effective strategy are:

. . . . . .

Present distributors are expensive, unreliable, or incapable of meeting firms needs

Availability of quality distributors is limited

When firm competes in an industry that is expected to grow markedly

Organization has both capital and human resources needed to manage new business of distribution

Advantages of stable production are high

Present distributors have high profit margins

When your present distributors are expensive and you think that without affecting the quality of the goods you have to carry own the operations, forward integration is advisable. Similarly, if distributors are unreliable, they can not deliver with a sustained degree of timeliness or they are not in a proper way to meet the needs of the firm, forward integration is advisable. Availability of quality distributors is limited or it is difficult to get the quality of goods, then this need for a quality distributor, forward integration is best alternative. Suppose you have two industries, computers and mobile telephone which are progressing tremendously, it is advisable to think of forward integration due to the changing environment of the business. Organization has both capital and human resources needed to manage new business of distribution. A firm has all the basic elements to run the business safely in that case forward integration is best alternate.

For stable production, stable supply is necessary. If you think that present distributors are charging high mark up, you may do that operation your self in order to avoid the mark up charges. It is advisable that firm itself involve in the operations. By gaining control, stability will be more and profitability will be enhanced. When an organization's present distributors are especially expensive, or unreliable, or incapable of meeting the firm's distribution needs When the availability of quality distributors is so limited as to offer a competitive advantage to those firms that integrate forward When an organization competes in an industry that is growing and is expected to continue to grow markedly; this is a factor because forward integration reduces an organization's ability to diversify if its basic industry falters When an organization has both the capital and human resources needed to manage the new business of distributing its own products When the advantages of stable production are particularly high; this is a consideration because an organization can increase the predictability of the demand for its output through forward integration When present distributors or retailers have high profit margins; this situation suggests that a company profitably could distribute its own products and price them more competitively by integrating forward

Backward Integration
Seeking ownership or increased control of a firms suppliers Both manufacturers and retailers purchase needed materials from suppliers. Backward integration is a strategy of seeking ownership or increased control of a firm's suppliers. This strategy can be especially appropriate when a firm's current suppliers are unreliable, too costly, or cannot meet the firm's needs.

Guidelines for Backward Integration:

Six guidelines when backward integration may be an especially effective strategy are:

. . . . . .

When present suppliers are expensive, unreliable, or incapable of meeting needs

Number of suppliers is small and number of competitors large

High growth in industry sector

Firm has both capital and human resources to manage new business

Advantages of stable prices are important

Present supplies have high profit margins

When an organization's present suppliers are especially expensive, or unreliable, or incapable of

meeting the firm's needs for parts, components, assemblies, or raw materials 83 When the number of suppliers is small and the number of competitors is large When an organization competes in an industry that is growing rapidly; this is a factor because integrative-type strategies (forward, backward, and horizontal) reduce an organization's ability to diversify in a declining industry When an organization has both capital and human resources to manage the new business of supplying its own raw materials When the advantages of stable prices are particularly important; this is a factor because an organization can stabilize the cost of its raw materials and the associated price of its product through backward integration When present supplies have high profit margins, which suggests that the business of supplying products or services in the given industry is a worthwhile venture When an organization needs to acquire a needed resource quickly

Horizontal Integration: Seeking ownership or increased control over competitors Horizontal integration refers to a strategy of seeking ownership of or increased control over a firm's
competitors. One of the most significant trends in strategic management today is the increased use of horizontal integration as a growth strategy. Mergers, acquisitions, and takeovers among competitors allow for increased economies of scale and enhanced transfer of resources and competencies. Increased control over competitors means that you have to look for new opportunities either by the purchase of the new firm or hostile take over the other firm. One organization gains control of other which functioning within the same industry. It should be done that every firm wants to increase its area of influence, market share and business.

Guidelines for Horizontal Integration:

Four guidelines when horizontal integration may be an especially effective strategy are:

. . . .

Firm can gain monopolistic characteristics without being challenged by federal government

Competes in growing industry

Increased economies of scale provide major competitive advantages

Faltering due to lack of managerial expertise or need for particular resources

When an organization can gain monopolistic characteristics in a particular area or region without being challenged by the federal government for "tending substantially" to reduce competition When an organization competes in a growing industry When increased economies of scale provide major competitive advantages When an organization has both the capital and human talent needed to successfully manage an expanded organization When competitors are faltering due to a lack of managerial expertise or a need for particular resources that an organization possesses; note that horizontal integration would not be appropriate if competitors are doing poorly because overall industry sales are declining

IN DOGS THE BELOW STEPS ARE TO APPLIED TO SUVIVE: Conventional strategic thinking suggests there are four possible strategies for each SBU: (1) Build Share: here the company can invest to increase market share (for example turning a "question mark" into a star) (2) Hold: here the company invests just enough to keep the SBU in its present position (3) Harvest: here the company reduces the amount of investment in order to maximise the short-term cash flows and profits from the SBU. This may have the effect of turning Stars into Cash Cows. (4) Divest: the company can divest the SBU by phasing it out or selling it - in order to use the resources elsewhere (e.g. investing in the more promising "question marks").